1. Methodology
1.1 Background
The survey of the business environment is a product of the IFC Azerbaijan Business Enabling Environment Project. This national level survey of small and medium enterprises and individual entrepreneurs in various sectors of the Azerbaijani economy is the first of its kind to be implemented in the country. The survey was conducted from Nov 2007-Jan 2008.
1.2 Purpose of survey
The main objective of the survey is to measure regulatory and administrative barriers adversely affecting the growth, development, and operations of the private sector in Azerbaijan. The empirical survey data and subsequent recommendations to Azerbaijani state authorities are expected to stimulate the debate for reform of the regulatory and administrative environment for the private sector in various procedures, such as the followings: n State registration of business units; n State control and inspections over existing business units; n Licensing of activities carried by business units that require special permission; n Obtaining permits/approvals for launching and continuation of business activities; n Certification of products and services of existing business units; n Import and export operations; n Taxation; n Analysis of the entrepreneurial financial indicators; n Relations between private sector and financial institutions.
1.3 Sampling strategy
The survey used a probability-based sampling methodology in which the firms were selected for interview according to a known non-zero probability. The major advantage of this method was that from a sound sample, statistical inferences can be made about a larger population (at national, regional or sector levels). In order to make sure that the sample distribution was representative of the Azerbaijani economy, the sample framework was based on the incidence and distribution of
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entities nationwide from the official statistical data provided by the State Statistical Committee of the Azerbaijan Republic as of January 1, 2007. The stratification of the sample was based on: (i) sectors of the economy defined by the State Statistics Committee; (ii) size and type of enterprise, defined as number of employees; and (iii) regions. Tables 1.1, 1.2 and 1.3 show the distribution of the official data and the distribution of the survey sample. Stratified random sampling is used to capture all the sectors of economic activity, including firm classification and geographic distribution of the business entities’ universe. In other words, in order to make the sample selection representative of a sector, firm type and region, the selected sample fully represents the larger economic picture.
1.4 Firm classification in the Azerbaijani economy
According to decree No. 57 of the Cabinet of Ministries of the Republic of Azerbaijan on Identification of the Small Entrepreneurship Subjects by Types of Economic Activity dated April 20, 2004, small businesses are defined as follows according to sector: n In the construction and industry – number of employees of less than 40 person and annual turnover of less than 200,000 Azerbaijani manats (~$247,000); n Agriculture – number of employees of less than 15 people and annual turnover of less than 100,000 Azerbaijani manats (~$123,500); n Wholesale trade – number of employees of less than 10 people and annual turnover of less than 300,000 Azerbaijani manats (~$370,500); n Other branches – number of employees of less than 5 people and annual turnover of less than 100,000 Azerbaijani manats (~$123,500). There is no official definition of midsize legal entities in Azerbaijan. IEs are classified as small enterprises while legal entities are further classified as either small or all the others that make up the SME sector. Therefore except for the large companies, all other registered businesses fall within the category of SMEs. In terms of regional coverage, the survey was conducted in the urban areas of eight regions (Absheron, Ganja-Gazakh, Sheki-Zagatala, Lenkoran, Guba-Khachmaz, Aran, Yukhari Garabakh, Daglig Shirvan) and the capital city Baku. The survey does not cover the occupied territories of the Republic of Azerbaijan and Nakhchivan. In terms of sample size, 873 individual entrepreneurs and 893 legal entities’ were interviewed during the survey, for a total of 1,776 respondents in the sample. The respondents were the owners or top managers of private sector small and medium enterprises and individual entrepreneurs, responsible for decision making. Since retail and wholesale trade individual entrepreneurs form the largest share of economic subjects (58 percent of the entrepreneurs), a decision was taken to reduce their number, since the scope of their business operations is less complex and thus less informative. Their share was therefore halved. This was done with an aim to increase
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the share of economically active companies in the sample. After that all weight coefficients were calculated and used during the analytical process.
1.5 Data collection
The survey was conducted by an independent survey company commencing in autumn 2007. The main survey instrument was a written questionnaire with 134 questions, which was pilot-tested before commencing the fieldwork. The questionnaire covered the following procedures: business registration, obtaining licenses, permits and certificates, access to finance, inspections, taxation, and foreign trade regimes.
1.6 Qualitative method of data collection
In addition to the probability-based quantitative method of data collection as described above, the survey also used qualitative means to gather information through meetings with industry experts, practitioners, and focus groups discussions. Qualitative methods to gather information are often used during identification of a problem, and when trying to understand the scope of a problem when information gaps exist in the data. Since the survey had to do with quantification of different regulatory procedures, key informant interviews and focus groups were organized to understand for example, average expenditures and average time required for particular procedures. In-depth interviews with experts were conducted to understand the details of several special procedures. For example, meetings with experts such as professional agents/ lawyers dealing with business registration were organized to understand the steps and procedures relating to business registration. Focus group discussions with entrepreneurs were organized in order to identify the most problematic procedures for entrepreneurs, and also to understand and interpret the empirical survey results. The focus groups, of five-seven participants, were led by an experienced moderator; a total number of 10 focus group discussions were held. Topics included business registration, permits, and inspections.
1.7 Distribution of official data and survey sample, by sector of activity
The sampling frame was prepared in accordance with the official statistics data for Azerbaijan for the last available year the information was fully processed. The tables below serve the purpose of indicating the sampling strategy for the IFC’s SME survey. The total breakdown includes a split between IEs and SMEs in the ratio 85:15 percent. The lower two tables present the split by the economic activity.
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Table 1.1 Distribution of official data and survey sample, for all business units Scope of activity Official statistics Total Agriculture, hunting and forestry / Fishing Mining/ Manufacturing / Electricity, gas and water supply Construction Wholesale and retail trade; Repair of motor vehicles, household and personal goods Hotels and restaurants Transport, storage and communication Financial intermediation Real estate, renting and business activities Public administration and defense; compulsory social security Education Health and social work Other community, social and personal service activities Private household with employed persons Extra-territorial organizations and bodies Other Total 7,995 4,967 2,684 130,408 10,564 19,660 262 4,898 1 186 585 20,272 0 0 0 202,482 IE 2,439 2,506 412 119,510 10,066 18,850 0 2,243 0 0 0 15,733 0 0 0 171,759 SME 5,556 2,461 2,272 10,898 498 810 262 2,655 1 186 585 4,539 0 0 0 30,723 Survey results IE 31% 50% 15% 92% 95% 96% 0% 46% 0% 0% 0% 78% 0% 0% 0% 85% SME 69% 50% 85% 8% 5% 4% 100% 54% 100% 100% 100% 22% 0% 0% 0% 15%
Table 1.2 Distribution of official data and survey sample, by sector of activity for individual entrepreneurs Scope of activity Official statistics Total Agriculture, hunting and forestry / Fishing Mining/ Manufacturing / Electricity, gas and water supply Construction Wholesale and retail trade; Repair of motor vehicles, household and personal goods Hotels and restaurants 2,439 2,506 412 119,510 10,066 % from total 1.4% 1.5% 0.2% 69.6% 5.9% Survey results Number of interviews 2,633 3,829 216 113,485 9,460 Total 1.6% 2.4% 0.1% 70.6% 5.9%
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Scope of activity
Official statistics Total % from total 11.0% 0.0% 1.3% 0.0% 0.0% 0.0% 9.2% 0.0% 0.0% 0.0% 100.0%
Survey results Number of interviews 17,449 0 2,070 0 9 12 11,637 0 0 0 160,800 Total 10.9% 0.0% 1.3% 0.0% 0.0% 0.0% 7.2% 0.0% 0.0% 0.0% 100,0%
Transport, storage and communication Financial intermediation Real estate, renting and business activities Public administration and defense; compulsory social security Education Health and social work Other community, social and personal service activities Private household with employed persons Extra-territorial organizations and bodies Other Total
18,850 0 2,243 0 0 0 15,733 0 0 0 171,759
Table 1.3 Distribution of official data and survey sample, by sector of activity for small and medium enterprises Scope of activity Official statistics Total Agriculture, hunting and forestry / Fishing Mining/ Manufacturing / Electricity, gas and water supply Construction Wholesale and retail trade; Repair of motor vehicles, household and personal goods Hotels and restaurants Transport, storage and communication Financial intermediation Real estate, renting and business activities Public administration and defense; compulsory social security Education 5,556 2,461 2,272 10,898 498 810 262 2,655 1 186 % from total 18.1% 8.0% 7.4% 35.5% 1.6% 2.6% 0,9% 8.6% 0% 0.6% 184 0.6% Survey results Number of interviews 5,480 2,323 2,190 10,570 487 776 262 2,602 Total 18.4% 7.8% 7.3% 35.4% 1.6% 2.6% 0.9% 8.7%
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Scope of activity
Official statistics Total % from total 1.9% 14.8% 0.0% 0.0% 0.0% 100.0%
Survey results Number of interviews 599 4,366 0 0 0 29,839 Total 2.0% 14.6% 0.0% 0.0% 0.0% 100.0%
Health and social work Other community, social and personal service activities Private household with employed persons Extra-territorial organizations and bodies Other Total
585 4,539 0 0 0 30,723
Annex 1.1 Focus group discussions
Moderator guide were developed for the focus group discussions. As an example, the focus groups guide on permits is presented below. 1. Dear participants, as far as we know, for doing business you need to get permits from state agencies. Could you please indicate what permits you obtained (and from which agencies)? [Moderator takes a note of all indicated permits on the board. Ask again if there are any additions to be made to the list.] 2. Could you please describe why you need these permits or for what purpose this permit is provided? [Moderator asks about the most common permits.] 3. Please describe how you obtain the permits? Please indicate everything in details, even things that you considered not significant. [Moderate listens to one participant and after each contribution checks it with others to identify whether this information is common to others.] 4. We drew an approximate outline of obtaining permits and would like to ask whether you agree with this plan or you have any comments or suggestions? [After the answers of respondents moderator continues.] 5. Now, let us check these data. I need to learn from each of you four figures а) how much time on average is required for you to pass this stage b) which expenditures you regularly make or are you ready to made at this stage c) how many people are required for solving this stage; d) how often you have to renew these permits? [Figures are put next to icons. If several figures were indicated then average figure is written. If figures are too different then reasons are clarified.] 6. Now, let’s talk about common characteristics of obtaining the permits. Who in your enterprise is dealing with this task? Is this person familiar with obtaining permits? How much are you (or your authorized person) aware of the procedures provided by law for obtaining permits? 7. At the end we would like to request that you talk about any not standard issues, questions, situations or cases that you or your enterprise faced during the process of obtaining permits? [If interesting remarks come up the moderator solicits the opinion of other participants, even if they have never faced this situation. It is important to ask them to consider other perspectives.]
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